419 plan problems audits lawsuits Edit article Published on September 2, 2015 LikedUnlike419 plan problems audits lawsuits7Comment29ShareShare 419 plan problems audits lawsuits9 Stacey Arenas Stacey Arenas Assistant Managing Director, Marketing Manager at Vebaplan LLC Some of you may remember the good old days of using 419 welfare benefit plans to help business owners (and doctors specifically) take massive 162 deductions where the money ultimately went into cash value life insurance. These plans were sold as a “benefit plan,” but they were really discriminatory deferred compensation plans in sheep’s clothing. For a while there was a legitimate use of 419 plans with life insurance, but it didn’t take long for the industry to come crashing down due to the abuses that took place. Unfortunately, for many, the fallout from those who used 419 plans is still happening today. Jerald W. White v. Commissioner (April 2012)This is a case that recently came down where a doctor who took large deductions for 419 plan contributions lost his audit and ended up not only paying back taxes, but also was hit with interest and penalties. What’s interesting about this case, besides the reminder that bad tax structures can be financially devastating for clients, is the discussion about back taxes and penalties. The defendant tried to get out of back taxes and penalties by stating that the deductions he took were based on reasonable cause and reliance on a substantial authority for such deductions. The court pointed out that at no time did the doctor seek out independent counsel on the authority, and that he relied on the promises of interested parties even though it was clear that the promises seemed too good to be true. What we all can learn from this case is that, if a structure sounds too good to be true, it just might be. Additionally, if you are going to use a tax-favorable structure to reduce your taxes and build wealth, make sure you have an uninterested CPA or attorney look at the plan. Reputable income tax planningHonestly, there are not many reputable income tax planning tools left. The IRS has killed most of them. However, one viable tool that is becoming more main stream is the use of a Captive Insurance Company (CIC). Over 24 states have CIC legislation, and, when “done right,” a CIC can be a risk-management tool that has tremendous other benefits such as tax reduction and wealth building. The problem with many CICs is that the administrators who set them up and run them do not do the proper underwriting necessary to create valid structures. Many fudge the numbers to get to deductions that are not warranted by the client’s income or type of business.- See more at: http://www.hcplive.com/physicians-money-digest/personal-finance/doctors-419-plan-deduction-denied#sthash.6caq2u6C.dpuf
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12s Stacey Arenas Assistant Managing Director, Marketing Manager at Vebaplan LLC Skip to main content LinkedIn Find People, Jobs, Companies, and MoreSearch for: All Keywords… See more LikeReply 1y Lance Wallach Managing Director at VEBA LLC. Abusive Welfare Benefit and Retirement Plans Can Lead to Severe Penalties for Accountants By Lance Wallach Accountants who are unaware of recent developments are likely to encounter a nightmarish… See more UnlikeReplyYou +1 1y Lance Wallach Business Owner at National Offices of Lance Wallach We can help you deal with: audits, appeals and Tax Court issues involving 419 Plan deductions and the taxation of withdrawals listed transaction issues including filing Form 8886 and fighting the section 6707A penalties Picture… See more
419 plan problems audits lawsuits
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Published on September 2, 2015
LikedUnlike419 plan problems audits lawsuits7Comment29ShareShare 419 plan problems audits lawsuits9
Stacey Arenas
Stacey Arenas
Assistant Managing Director, Marketing Manager at Vebaplan LLC
Some of you may remember the good old days of using 419 welfare benefit plans to help business owners (and doctors specifically) take massive 162 deductions where the money ultimately went into cash value life insurance. These plans were sold as a “benefit plan,” but they were really discriminatory deferred compensation plans in sheep’s clothing. For a while there was a legitimate use of 419 plans with life insurance, but it didn’t take long for the industry to come crashing down due to the abuses that took place. Unfortunately, for many, the fallout from those who used 419 plans is still happening today. Jerald W. White v. Commissioner (April 2012)This is a case that recently came down where a doctor who took large deductions for 419 plan contributions lost his audit and ended up not only paying back taxes, but also was hit with interest and penalties. What’s interesting about this case, besides the reminder that bad tax structures can be financially devastating for clients, is the discussion about back taxes and penalties. The defendant tried to get out of back taxes and penalties by stating that the deductions he took were based on reasonable cause and reliance on a substantial authority for such deductions. The court pointed out that at no time did the doctor seek out independent counsel on the authority, and that he relied on the promises of interested parties even though it was clear that the promises seemed too good to be true. What we all can learn from this case is that, if a structure sounds too good to be true, it just might be. Additionally, if you are going to use a tax-favorable structure to reduce your taxes and build wealth, make sure you have an uninterested CPA or attorney look at the plan. Reputable income tax planningHonestly, there are not many reputable income tax planning tools left. The IRS has killed most of them. However, one viable tool that is becoming more main stream is the use of a Captive Insurance Company (CIC). Over 24 states have CIC legislation, and, when “done right,” a CIC can be a risk-management tool that has tremendous other benefits such as tax reduction and wealth building. The problem with many CICs is that the administrators who set them up and run them do not do the proper underwriting necessary to create valid structures. Many fudge the numbers to get to deductions that are not warranted by the client’s income or type of business.- See more at: http://www.hcplive.com/physicians-money-digest/personal-finance/doctors-419-plan-deduction-denied#sthash.6caq2u6C.dpuf
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Stacey Arenas
Stacey Arenas
Assistant Managing Director, Marketing Manager at Vebaplan LLC
531 articles
29 commentsRecommended
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12s
Stacey Arenas
Assistant Managing Director, Marketing Manager at Vebaplan LLC
Skip to main content
LinkedIn
Find People, Jobs, Companies, and MoreSearch for:
All
Keywords… See more
LikeReply
1y
Lance Wallach
Managing Director at VEBA LLC.
Abusive Welfare Benefit and
Retirement Plans Can Lead to
Severe Penalties for Accountants
By Lance Wallach
Accountants who are unaware of recent developments are likely to encounter a nightmarish… See more
UnlikeReplyYou +1
1y
Lance Wallach
Business Owner at National Offices of Lance Wallach
We can help you deal with:
audits, appeals and Tax Court
issues involving 419 Plan deductions and the taxation of withdrawals
listed transaction issues including filing Form 8886 and fighting the section 6707A penalties
Picture… See more